EU takes on US in tit-for-tat bank row

THE Euro­pean Union will re­quire big for­eign banks op­er­at­ing in Europe to set aside bil­lions in re­serve funds in a tit-for-tat move against the United States that could also af­fect postBrexit Bri­tain, ac­cord­ing to a draft pro­posal seen by AFP.

The Euro­pean Com­mis­sion, the ex­ec­u­tive body of the 28-na­tion Euro­pean Union, will an­nounce a se­ries of new bank­ing reg­u­la­tions that will in­clude the new re­quire­ment.

“We are ac­tu­ally mir­ror­ing what the US has al­ready done,” a Euro­pean source said.

The US in 2014 an­gered Brus­sels when it sud­denly re­quired ma­jor Euro­pean banks – such as Ger­many’s Deutsche Bank – to park bil­lions in the United States in case prob­lems at their sub­sidiaries threat­ened to in­volve the US tax payer.

The EU warned at the time that these ex­tra costs risked spark­ing a pro­tec­tion­ist re­ac­tion in Europe.

If ap­proved into EU law, the new mea­sure would re­quire ma­jor US banks such as Gold­man Sachs and JP Mor­gan to set aside ex­tra cap­i­tal so that their op­er­a­tions in Europe could be wound up sep­a­rately if needed.

The Fi­nan­cial Times, which first re­ported the pro­posal, said this would force the banks to raise bil­lions of eu­ros to keep op­er­at­ing in Europe.

The rules could also pose a threat to Lon­don af­ter the UK com­pletes its Brexit di­vorce from the EU.

A per­son fa­mil­iar with the think­ing of US banks said the pro­posal would re­sult in a “more oner­ous process to do busi­ness in the EU”, as well as some ad­di­tional cap­i­tal set-asides.

One of the ques­tions “is how this broader trend of this tit-for-tat be­tween na­tional ju­ris­dic­tions will play out”, said this per­son. “This could be the first of many sim­i­lar” is­sues.

“The na­tional ju­ris­dic­tions are push­ing back against much of the in­ter­na­tional process right now,” said the per­son fa­mil­iar with US banks. “Def­i­nitely the na­tional gov­ern­ments are heav­ily in­volved in pro­tect­ing their in­sti­tu­tions.”

Large US banks have based their Euro­pean head­quar­ters in Lon­don and could be forced to re­lo­cate key op­er­a­tions to other Euro­pean ci­ties due to Brexit.

De­pend­ing on how the Brus­sels cap­i­tal re­quire­ments rule is set, banks could be forced to es­tab­lish hold­ing com­pa­nies in one or more Euro­pean coun­tries and then to hold cap­i­tal for each of these en­ti­ties.

The mea­sure by the EU comes amid spats with the US over Apple and Deutsche Bank and squab­bles about Air­bus and Boe­ing and will ex­ac­er­bate fur­ther the strains in USEuro­pean eco­nomic re­la­tions which look likely to worsen with Don­ald Trump as pres­i­dent.

Out­go­ing US Trea­sury Sec­re­tary Ja­cob Lew has re­peat­edly ac­cused the Euro­peans of dis­pro­por­tion­ately fo­cus­ing on US cor­po­ra­tions.

“The Euro­pean Com­mis­sion took some time to re­spond to the US au­thor­i­ties,” said Ni­co­las Veron, an econ­o­mist at the Peter­son In­sti­tute for In­ter­na­tional Eco­nom­ics in Wash­ing­ton and at the Brus­sels-based think tank Bruegel.

“Where it gets com­pli­cated is over Brexit. The Bri­tish will say this is a stab in the back even be­fore the start of Brexit ne­go­ti­a­tions,” he added.

The pro­pos­als will face close scru­tiny “as long as Bri­tain re­mains in the EU”, Mr Veron said. –